When a borrower stops paying, a mortgage lender or servicer can initiate foreclosure to seize property ownership. When a mortgage is foreclosed, the property is auctioned off. According to the US Department of Housing and Urban Development, lenders typically begin foreclosure three to six months following the first late payment. If you are facing such as situation, here are ways to deal with it:
Forbearance
When you encounter financial distress, forbearance allows you to halt or lower your monthly mortgage payments temporarily. You could need forbearance due to damages caused by a natural calamity, loss of employment, or a disease. This relaxation in mortgage payments gives you time to locate a new job or get your finances back on track.
Together, you and your lender can decide the forbearance’s parameters, including how much and how long your payments will be lowered. After the forbearance term expires, you must make up all missing payments.
Selling Your House
Another option is to sell your home privately rather than selling it at a foreclosure auction. Find out the potential selling price of your house by working with a real estate professional. You can pay off your mortgage once you sell your property if it’s worth higher or equal to what you owe. After the sale, you may have leftover cash to purchase the new home.
Short Sale
If the money from the sale of your property isn’t sufficient to pay your mortgage in full, talk to your lender about making a short sale. When a house is sold in a short sale, the profits aren’t enough to pay the mortgage fully. Thus, the lender agrees to take a portion of the proceeds and forgoes the remaining balance. With this option, the lender could even be willing to offer you relocation aid.
Modifying You Loan
You can also ask your lender for a loan modification if you face a longer-term difficulty and cannot repay your monthly mortgage payments. In the case of a loan modification, the conditions of the loan are modified, making it more manageable. This option could entail extending your loan’s duration or decreasing the loan’s interest rate.
Refinancing Your Mortgage
If you haven’t missed any payments but foresee missing them in the upcoming months, consider refinancing your mortgage. Refinancing into a longer term means you can reduce your payments enough to make them affordable. However, bear in mind that closing expenses are a part of refinancing.
Final Word
A foreclosure means losing your house, facing a severe loss on your credit, and not being able to obtain another mortgage for many years. Follow the tips mentioned in this blog to avoid this stressful situation.
